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Interest Disclosure

Interest Disclosure

A recent case from the Southern District of New York, published just weeks ago, goes a long way toward clarifying what collectors are and are not able to state in the initial demand letter (IDL). In CHRISTINE TAYLOR, et al. vs FINANCIAL RECOVERY SERVICES, INC., a collection agency sent notices to two different consumer debtors. Included in these notices were statements, in multiple places, showing the balance of the debt. The IDLs did not mention accruing interest or fees on the debts; They simply stated that the debtors could settle the debt by paying the balance shown. In fact, no interest was being charged on the debt.

Regardless, the debtors filed suit against the agency for violation of the FDCPA and later sought summary judgment on the grounds that that the agency’s failure to state whether interest was accruing on the debt was misleading.. Keep in mind that the clear language of the FDCPA does not mention or give guidance on this issue either way.

Using the “least sophisticated consumer” as the standard, the Court found that the IDLs were not misleading to the least sophisticated consumer, “who might not understand or even consider the concept of interest and when it accrues; could reasonably take the language at face value as to the amount owed; or might infer from the unchanging amount in each of the coupons and successive letters that interest was not accruing.” The Collection Notices were not false, nor were they misleading nor deceptive to the debtor. “By their terms, the letters neither state nor imply that interest or fees are accruing. To the contrary, each letter contains three payment coupons, presumably to accompany payments over time, and each payment coupon states the same static amount due without any increase for the passage of time. Similarly, each successive letter states the same amount due as the prior letter. If anything, the letters imply that interest was not accruing.” Therefore, Count I was dismissed.

The second issue concerns the fact that the agency’s IDL included language stating that settlement for less than the balance due may have tax consequences. The Plaintiffs argue that the statement is misleading because the least sophisticated consumer could believe that the agency is suggesting it will report the settlement to the IRS. However, the IDL did not say that. Furthermore, the statement that “settlement for less than the balance due may have tax consequences” is in fact a true statement. Therefore, Count II was also rejected by the court, as it denied the motion for summary judgment.

It is important to us at Hiday & Ricke to stay abreast of current court cases, so we and our clients are on top of their game.  Laws and Statutes governing debt collection are ever changing, and it takes a diligent effort to ensure constant compliance, but that’s the way we’ve done it since we opened our doors in 1984. If we can help you or your company, please feel free to give us a call.


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